National Association of Home Builders Discusses Economics and Housing Policy

New Home Sales Burst Forward

US Departments of Commerce and Housing and Urban Development reported new homes sales up 8.3% in June over the May revised figure. New home sales were at 497,000 on an annual basis, the highest rate in five years. Sales were up in three of the four regions; the 12% drop in the Midwest was an adjustment to a much higher than trend rate in May but still higher than months prior to May.

The inventory of new homes for sale rose slightly but the months’ supply (the time it would take to sell the remaining inventory at current sales pace) dropped to 3.9. The months’ supply level ties January 2013 for the lowest level since March 2004. The number of completed new homes for sale remains at the lowest level (36,000) ever recorded in the 40 years of data. Builders have been struggling to resupply inventory as they battle increases in costs and reduction in supply of all their inputs: labor, land, building materials and capital.

As the industry gears back from 70 year lows, all of the infrastructure needed to build homes must be rebuilt. Building suppliers are rehiring staff and re-opening or building plants; workers are being enticed back into the industry or trained in schools or Job Corps programs; developers are buying land and seeking zoning and building permissions; and builders are seeking loans from banks and other sources of capital to invest in the inventory needed to supply the returning demand.

In partial reflection of the rise in costs, new home prices rose 7.4% from June 2012. Over the past 11 months, the average annual increase has been 13% as builders respond to the increased demand, as existing home inventories remain low and as only the more financially able households are approved for mortgages. NAHB expects new home sales to continue to improve although not at the same pace as the most recent month.